Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 4 - Technical Analysis
Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 5 - Psychology
Skillsfirst Level 5 Diploma in Financial Trading (RQF) - Module 6 - Risk and Money Management
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MARGIN AND LEVERAGE

Margin

In financial terms margin is the collateral requirement to be able to buy or sell financial instruments within the market place. Since different products in the market place have different risks, volatility and different contract sizes, margins differ on a product to product basis. Margin is therefore a calculation that is used to tell you how much of your account funds are being used on any one or more positions. This allows institutions to work out if you have enough money to trade a particular product based on its margin cost (these can be found on exchange websites). In very simplistic terms if you purchase for example 1 DJ Stoxx 50 Index futures contract on the margin requirement is €4,483, which is the amount of money you will need in your account to purchase 1 contract in that product.

Overnight Margin

Similar in nature to margin but in this instance the calculation considers the cost of holding a position overnight to the next trading day which by its own nature has further inherent risks due to any amount of news, or events that could cause markets to move in the period between close and open of any given market. Overnight margin is calculated using volatility calculations and like margin they vary from product to product and in most cases, require larger capital in account than margin alone.

Margin Call

A margin call is simply a term to say that you do not have enough money in your account based on the positions you hold in the market and when this happens your account holder will generally contact you with a margin call which basically means either put more money in your account to cover margin requirements and or reduce your positions/exposure in the market.

Leverage

Leverage can be described in finance as a facility which gives traders a larger exposure to any given financial market whilst using a relatively small amount of capital. Leverage can be a risky business since you are still liable for the total losses even though you used a small amount of capital in your trading account. Therefore, you could lose more than you have in your account if not managed correctly.

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